Ninety One's R10bn investment fund to help some of the businesses hardest hit by the Covid-19 and a lockdown that's into its third month will focus on companies not covered by existing rescue schemes.
The Ninety One SA Recovery Fund, set up with private equity company Ethos, will steer cash towards businesses that are too big to benefit from initiatives such as the credit guarantee scheme the government launched in May, but do not have the market power to raise finance independently like the country's corporate heavyweights.
The latest initiative to support businesses that might struggle to survive after being partially or fully closed since late March differs from others in that, rather than giving out cheap loans, it will give investors an opportunity to earn a commercial return supporting distressed companies that would otherwise be viable.
John Green, chief commercial officer at Ninety One, which was Investec's asset-management arm before its separate listing in March, said the fund will target small and medium sized companies (SMEs) with more than R300m in annual revenue. While it will not exclude any sectors, it will focus on listed and private businesses in the industrial, leisure, retail and construction sectors which have been some of the hardest hit.
The government's R200bn credit guarantee scheme, set up in partnership with commercial lenders and administered by the Reserve Bank, is aimed at companies with less than R300m revenue. Bigger firms are seen as having enough resilience to raise cash through other means such as tapping existing shareholders.
“We’re targeting businesses that are above the R300m revenue limit,” Green said. “The ones below qualify for other sources of capital. At the same time we’re not targeting, through this, the large caps. They have enough capacity and capability to solve their balance sheet cash questions tough normal channels.”
The initiative will consider businesses that were strong and successful before the coronavirus surfaced and would need to display recovery coming out of Covid-19, Green said.
Ninety One, which managed about R2.29-trillion in assets at the end of March, said it was initially targeting funds from institutions but ultimately wanted to open the fund to retail investors.
“The lockdown, while necessary to protect the nation’s health, has been akin to putting the economy into an induced coma,” Ninety One CEO Hendrik du Toit said in a statement. That had left SA facing “a once-in-a-generation economic challenge,” he said.
Ethos Private Equity CEO Stuart MacKenzie, said without any intervention the fallout could lead to a loss of productivity that would last a decade. The company, which runs credit and private equity funds across Africa, manages about R21bn across six funds.
“For all business that operate in all sectors, there is going to be a need for some form of liquidity as the economy opens up again. That need is going to be heightened in businesses that have had to put themselves into hibernation and have racked up creditor payments that have been delayed.”
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